Production Agreements, Sustainability Investments, and Consumer Welfare

Maarten Schinkel, Yossi Spiegel and Leonard Treuren

No 16991, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Schinkel and Spiegel (2017) finds that allowing sustainability agreements in which firms coordinate their investments in sustainability leads to lower investments and lower output. By contrast, allowing production agreements, in which firms coordinate output yet continue to compete on investments, boosts investments in sustainability and may also benefit consumers. We extend these results to the case where investments affect not only the consumersÂ’ willingness to pay, but also marginal cost. We show that sustainability agreements continue to lower investments and output levels, while production agreements increase investments but when they benefit consumers, they are not profitable for firms and will therefore not be formed. This implies that exempting horizontal agreements from the cartel prohibition cannot be relied on to advance sustainability goals and satisfy the competition law requirement that consumers must not be worse off.

Keywords: Sustainability; investment; Horizontal agreement (search for similar items in EconPapers)
JEL-codes: K21 L13 L40 Q01 (search for similar items in EconPapers)
Date: 2022-03
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